(Solved): Suppose there are two independent economic factors, M1 and M2. The risk ...

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Suppose there are two independent economic factors, $M_1$ and $M_2$. The risk-free rate is $7\%$, and all stocks have independent firmspecific components with a standard deviation of $55\%$. Portfolios $A$ and $B$ are both well diversified. Required: What is the expected return-beta relationship in this economy? (Do not round intermediate calculations. Round your answers to 2 decimal places.)